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S&P Downgrades Chartis Rating to Stable, Upgrades AIG's Outlook

Posted on 01 Mar 2011

Standard & Poor's Ratings Services (S&P) cut its credit rating on the property/casualty unit, Chartis, which is owned by American International Group Inc. (AIG) , saying the unit's fourth-quarter performance was worse than expected.

S&P wrote in a research update on Monday that the downgrade of Chartis "reflects our modified view that [it] will not be able to outperform the industry over the next one to two years, despite its formidable competitive global presence."

The ratings company cut the financial strength and counterparty credit ratings on Chartis to A from A-plus.

AIG said last week Chartis had a fourth-quarter underwriting loss, even when a previously announced charge to bolster the company's reserves was excluded. S&P said it expected ongoing industrywide pressure on commercial insurance prices in the U.S. "will hamper improvement" in profit margins.

In the same announcement, S&P lifted its outlook on the overall AIG credit rating to stable, saying the company had improved "its overall liquidity position." Still, S&P said its rating on the parent company was dependent in part on "the continued, albeit diminished, support from the U.S. government." Without it, AIG's credit rating would be one notch lower.

S&P has AIG at A-, four rungs above junk territory.

The ratings company said it expects AIG's SunAmerica life insurance business to see premiums and deposits grow by low-single-digit percentages as the unit benefits "from its very strong competitive position." It expects Chartis to continue its shift to less volatile lines of business.